Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Welcome to the faceless future of banking

A prototype of a Diebold bank branch of the future.
Source: Diebold

Peek into the future of bank branches and you won't see many bankers.

In the years ahead—sooner rather than later—banks will continue to shutter their satellites and turn to other means to perform the services once done at the branches.

Community-level banking, particularly from large institutions, will become more cost efficient and less personal. Where there once stood smiling tellers at windows there now will be, under at least one scenario, equally pleasant avatars programmed to do their customers' bidding.

Banks shut some 1,407 branches in 2014, a near record and a trend that is likely to continue, according to SNL Financial.

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But even though those branches are going away, demand for services they provide to communities across the country remains. It will be the delivery of those services that will change the most.

"The idea eventually is for full teller replacement," said Devon Watson, vice president of new business and solution incubation, global research and development at Diebold. "This is intended to get customers thinking about the next generation of problems."

Banking outlook for 2015
Banking outlook for 2015

Watson spoke to during a recent private presentation in New York of the company's big branching brainchild—a self-contained banking universe that looks like an enclosed automated teller machine but does so much more.

Diebold, a company known for its ubiquitous ATMs, is trying to get in front of the trend with a product that will begin making appearances for undisclosed clients in the first quarter of 2015. Essentially, the new type of branch has three different centers—"experience zones," according to Watson—that either will be used independently or together as a way for banks to continue providing services but in a way that negates the need for tellers and provides a much quicker customer encounter.

The 118-square-foot centers entail an updated ATM on the outside that will use smartphones and thumbprint identification to allow customers to punch in how much they want to withdraw on their phones, then use their phone and thumbprint to take out the cash almost immediately after walking up to the machine, which will identify in advance an approaching customer.

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Once inside, customers can sit in front of a screen where they can connect remotely with a real person to apply for loans or conduct other business.

Finally, there's a separate seating area where customers can interact with a very human-like avatar to perform transactions such as balance transfers, deposits and withdrawals. Should the user get frustrated with the avatar, software can detect a problem and switch the customer over to a real person.

Diebold's clients "all found something different that they wanted first," Watson said. "We're really trying to find ways to better leverage the banks for sales and service."

As for banking customers, Watson said there are three targets for the experience zones: busy millennials, the "frenzied Gen X soccer mom" and baby boomers who own small businesses.

Coming up with innovative ways to serve customers will be important for banks as they reduce footprint and costs but aim to keep up the level of services. In addition to cutting branches, big banks are paring back on advertising and marketing.

The 10 banks with the most branches alone have closed 1,131 over the past two years, according to financial services firm Keefe, Bruyette & Woods. Bank of America itself has closed more than 1,000 over the past five years, including more than 170 in 2014, which led the industry, SNL reported.

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"We do not believe that both reducing branch numbers and reducing marketing spend are compatible with growth going forward," KBW analyst Frederick Cannon said in a recent note to clients. "We expect successful banks over the next decade will need to invest in brand-enhancing activities, including but not limited to marketing, to offset the appropriate decline in branch networks."

Cannon questions whether banks "are transforming their delivery systems fast enough to accommodate changing client needs" and notes that Apple Pay and other payment systems will post further challenges.

"The majority of transactions are now processed electronically, reducing the need for physical branches. This does not mean that bank branches will go the way of video stores or carriage shops, however," he said.

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"Branches allow for direct contact with individuals and businesses important for the sales of financial services. However, legacy branch networks are unlikely to be changing as quickly as their clients' use of electronic versus paper financial transactions," Cannon continued. "In our view, extensive branch networks need to be replaced, in part, with greater bank presence through electronic media and services."

How will they achieve that?

Cannon believes it will be done as banks "reinvest some of the savings into brand-enhancing measures, including advertising, marketing and technology."